Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A
Question:
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,900,000 and will last for six years. Variable costs are 35 percent of sales, and fixed costs are $1,580,000 per year. Machine B costs $4,450,000 and will last for nine years. Variable costs for this machine are 30 percent and fixed costs are $1,750,000 per year. The sales for each machine will be $11.5 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, which machine should the company choose?
Step by Step Answer:
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan